What is the main reason for goodwill on the admission of a new partner?

Correct answer: The new partner shares the future profits of the old partners

Goodwill represents the value of a firm's reputation, customer loyalty, favourable location, efficient management and expected excess earning capacity. On admission, the new partner obtains a right to participate in the firm's future profits, including profits generated by the efforts and reputation built by the old partners. Because the old partners may have to sacrifice part of their future profit share, the incoming partner is generally required to compensate them through goodwill or a premium for goodwill. Therefore option A states the relevant reason. A loan is not the basis of goodwill, old partners do not necessarily retire, and closing a bank account has no connection with goodwill accounting.